A legal look at ordinary hours and overtime allocation
Employers, and their HR managers, will be acutely aware of various penalties and loadings applied against time worked by employees – especially in industries involving the conduct of business at irregular hours. Because they can dramatically impact the overall profitability of an organisation, they tend to be the subject of intense negotiation.
Making things a bit more complicated is that the landscape of this space isn’t what it used to be. Throughout the course of 2018 and 2019, a narrow but important point of industrial law concerning the flexibility of overtime was litigated in the Federal Court of Australia.
Moving the goalposts
In early 2018, the Federal Court of Australia heard litigation between United Voice, the union with coverage of security guards, and Wilson, one of Australia’s largest security contractors. The employment of Wilson’s employees and United Voice’s members was covered by the Security Services Industry Award 2010 (“the Security Award”).
Clause 21.1 of the Security Award required payment of overtime loading at a rate of 150 per cent for the first 2 hours, and 200 per cent thereafter. The Security Award provided that overtime was payable as follows:
(a) The ordinary hours of work are 38 hours per week or, where the employer chooses to operate a roster, an average of 38 hours per week to be worked on one of the following bases at the discretion of the employer:
(i) 76 hours within a roster cycle not exceeding two weeks;
(ii) 114 hours within a roster cycle not exceeding three weeks;
(iii) 152 hours within a roster cycle not exceeding four weeks; or
(iv) 304 hours within a roster cycle not exceeding eight weeks.
Wilson implemented a fixed rotating roster over the course of a decade. The roster provided for 168 hours to be worked across a four-week cycle. Under this roster, 16 hours of overtime were allocated. Prior to October 2016, these hours were worked after the limit of 152 hours was exceeded and during the last two shifts in the roster on a Thursday and Friday. So Wilson paid 16 hours of overtime as though the overtime was worked on the last two shifts.
On around 31 October 2016, Wilson declared overtime would no longer be paid against hours worked on Thursdays and Fridays, and overtime would instead be paid on hours worked on Sundays.
The hours worked on Sundays did not exceed the limit on ordinary hours imposed by the Award. As the Award provided for a 100 per cent penalty rate on Sundays – and did not require employers to pay a penalty on a penalty (so overtime plus the Sunday rate) – Wilson would avoid payment of the overtime loading, and as superannuation, annual leave and personal leave are only paid against ordinary time, Wilson would also minimise these entitlements (“Overtime Allocation”).
Perhaps understandably, the Union sued.
Taking it to the Courts
The Federal Court was required to determine a single question – whether overtime could be paid on hours worked before the limit on ordinary hours was reached. It concluded that it could.
In reaching this conclusion, Justice Tracey considered a succession of cases litigated in the Fair Work Commission (FWC), including those before the Full Bench of the FWC, dealing with whether overtime could be moved within a roster to the advantage of employers.
Tracey held, “Overtime hours are hours that are worked in addition to ordinary hours” but “rostering arrangements are within the discretion of the employer. Consistently with the existence of this discretion, the award does not contain any express restrictions on the exercise of that power”.
Tracey specifically held that it’s open to an employer “to decide whether overtime hours can be included in the roster at a point before which all ordinary hours have been worked”.
The ambit of the decision made by the Federal Court was founded on the terms of the Security Award and limited to the Overtime Allocation within the Security industry. The decision did not establish any principle permitting Overtime Allocation in other awards or industrial instruments.
United Voice appealed this decision to the Full Court of the Federal Court of Australia. Broadly, the appeal involved running the same arguments again.
Justices Collier, Bromwhich and Wheelehan, dismissed the appeal stating that overtime is time “over ordinary hours, not necessarily after ordinary hours”. The Court expanded on this principle and explained where overtime is paid against a single shift, it ought be paid on the last hours worked.
However, when overtime is worked within a week or roster cycle spanning more than one week, overtime can be moved to different places within the period. This conclusion validated Overtime Allocation, as implemented by Wilson.
The principle established by this decision is that overtime is a flexible entitlement, and far more flexible than previously envisaged.
It appears open to employers to move overtime to hours that are otherwise attracting penalty rates. This practice decreases total labour costs significantly by eliminating penalties and reducing superannuation premiums paid against time attracting those penalties.
These principles do not appear confined to the Security Award. The Full Federal Court’s observations about the concept of overtime were not founded in the Security Award, but in the historical and industrial definition of overtime. However, it is clear that to implement Overtime Allocation, the terms of the Award or Agreement concerning the definition of ordinary hours must be similar to the Security Award.
How should employers react to this decision?
The decisions of the Federal Court create considerable flexibility for some employers to reduce labour costs through Overtime Allocation. It is likely, if not certain, that in highly unionised workplaces disputation will follow. This could include variations to Awards and litigation seeking recovery of unpaid wages and entitlements.
Employers considering implementing Overtime Allocation would be well advised to seek independent legal advice from experienced industrial lawyers before implementing Overtime Allocation. If Overtime Allocation is implemented, but not permitted by the industrial instrument, there is ample scope under the Fair Work Act 2009 for litigation commenced by employees, Unions or the Fair Work Ombudsman to recover wages and superannuation otherwise owing.
The liability of employers for the underpayment of wages can extend to HR managers, bookkeepers, company directors and payroll companies if they are found to be involved in the contravention of the industrial instrument. This includes liability to compensate the employees affected by the contravention.
This liability exists even when the employer enters into administration or is deregistered. Accordingly, it is crucial for all parties concerned by the practice of Overtime Allocation to carefully consider whether the industrial instrument permits it before implementation.
Industrial law specialist
Aulich Civil Law